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Prosafe's
prs.OS -3.6437246963562755%Prosafe SENorway: OsloNOK23.8
-0.9-3.6437246963562755%
/Date(1438377928000-0500)/
Volume (Delayed 15m)
:
274053
P/E Ratio
4.526694181866596Market Cap
5616158707.46684
Dividend Yield
6.050420168067227% Rev. per Employee
4877440More quote details and news »prs.OSinYour ValueYour ChangeShort position
pedigree is somewhat complicated. It's based in Norway, domiciled in the low-tax haven of Cyprus, and conducts all of its business in English, the lingua franca of the oil trade, in which the company occupies a dominant position in an obscure niche.

Yet such complexity shouldn't deter investors from taking a look at Prosafe, for its business is both stunningly simple and profitable, and its shares offer a dividend yield exceeding 7%.

The firm owns 11 semisubmersible "accommodation rigs," jargon for floating hotels or "floatels" that major oil companies hire to house extra workers during the construction, maintenance, and decommissioning stages of deep-sea oil-drilling rigs. Prosafe's floatels, which can accommodate 140 to more than 800 workers, offer catering facilities, storage space, offices, and medical facilities, as well as living quarters. They putt-putt out to the platforms and connect by gangway to the mother structure, letting workers literally walk to work. The floatel global fleet, including rivals' rigs, numbers only 20.

All the comforts of home: A gangway links a Prosafe floatel to a deepwater drilling rig.
Courtesy of Prosafe

IT'S A GREAT BUSINESS, but that's not fully reflected in the price of Prosafe's shares, which trade in Oslo (ticker: PRS.Norway). (The company has American depositary shares [PRSEY], but they change hands only over-the-counter and infrequently.)

Perhaps most important, Prosafe's business isn't given to the volatility of the oil-service industry, which tends to wax and wane with each gyration inBrent crude's price. Some 75% of Prosafe's leasing activity comes from mature oil rigs that have been active for at least five years and that need maintenance or updating.

Moreover, the trends seem to be moving in Prosafe's favor as drillers exploit oil fields in harsher climes and deeper waters. That's certainly the case in Norway's North Sea, the Norwegian Sea, and the Barents Sea, where Statoil is ramping up exploration and drilling, and Prosafe has three floatels, with a fourth set to be deployed in 2014.

Likewise, Prosafe has six floatels off Mexico, where Pemex is facing serious production declines in the giant Canterell Field. As a result, Pemex must now aggressively drill in the deepest waters of the Gulf of Mexico. That should provide much future business for Prosafe.

Brazil, in whose waters Prosafe has one hotel rig stationed, also should provide a bonanza, given recent oil-field discoveries in the Santos Basin. Prosafe's floatels are particularly suited for the ultra-deepwater rigs that will predominate there.

Recent Price

41.90 NOK

12-Month Change

18.0%

Market Val (bil)

9.6 NOK

Revenue 2012E (mil)

$494.6

EPS 2012E

$0.88

EPS 2013E

1.18

P/E 2012E

8.0

P/E2013E

6.0

Dividend Yield

7.5%

E=Estimate Source: Thomson Reuters

PROSAFE'S STOCK, recently at 41.9 Norwegian kroner (each equal to about 16.8 U.S. cents), seems cheap. Goldman Sachs forecasts that Prosafe will make the equivalent of 90 U.S. cents this year and $1.15 in 2013. Translated, that's NOK5.35 a share this year and NOK6.84 next year, for respective price-earnings ratios of 7.8 and 6.1 times, versus the major oil-service companies' average 14.4 and 11.9. Goldman has a one-year price target on the stock of 53NOK -- about 26% above the recent price -- but rates it Neutral, on concern that day rates in the Norwegian North Sea market may weaken in 2014 when two new floatels, including Prosafe's aforementioned one will come on line.

Yet a U.S. hedge fund with a substantial position in the stock views such concerns as overblown. It also regards Prosafe, with its stable but growing income and cash flow from long-term leases, as similar to a high-yielding real-estate investment trust. By the fund's calculation, Prosafe realized $302 million in earnings before interest, taxes, depreciation, and amortization over the last reported 12 months, on $504 million in revenue.

The Bottom Line

Prosafe's shares appear undervalued, with bulls saying they could rise by up to 55% over the next 12 months. And the stock currently offers a hefty yield exceeding 7%.

And Prosafe returns most of its net income to shareholders; its policy is to hand over about 75% of the prior year's profits via dividends. Those profits benefit mightily from Cyprus's tiny 5% tax on corporate profits.

In 2012 and 2013, Prosafe's dividend yields are likely to be about 7.6% and 8.2%, respectively. Some fans of the stock think it could rise by 37% to 64%-plus over the next 12 months. Even at the higher number, it would still yield 6% to 5%.

Prosafe may operate in forbidding parts of the Earth. But it could offer a safe harbor to investors seeking both income and capital appreciation.